Spending Review 2010: £83 billion sounds a lot – but these cuts are nowhere near enough

The Government is making a weak start in its attempt to deal with the deficit,
says Simon Heffer.

There will be something new, we must be sure, to be announced today in the Chancellor’s review of public spending, even though so much of it has been leaked already and, of course, the defence review was announced yesterday. We are meant to be awed by the £83 billion reduction in the deficit planned over the next four years, but should doubt this attempt (which will probably be reasonably successful in the short term) to grab the favourable attentions of the markets will be enough.

Before George Osborne took office I had grave reservations about his understanding of economics and, more to the point, his understanding of why exactly we are in this mess. Nothing he has said since May, and nothing leaked in the last few days, has altered this view. Maybe we shall be pleasantly surprised by his genius today, but we should not be banking on it.

Rather, we should have reservations about what we have been told is proposed. The reduction of £83 billion sounds like a lot of money, but it still represents a £92 billion increase in public spending by 2014-15. It will leave a state that is still too large, that is too much of a drain on the productive areas of the economy, and that is undertaking functions that could be done more efficiently and cheaply if transferred to the private sector. It will also leave a level of debt that will impoverish us steadily as interest rates rise, as one day they must. More should have been cut, and there should have been no shame in having an ideological ambition to take the state out of people’s lives as far as possible. After all, it is part of the Liberal Democrat intellectual heritage to do that, isn’t it?

Second, the priorities about which budgets to protect, and which to cut, do not appear to have been composed with any strategic sense, but out of pure political expediency of a sort that this predicament should be too grave to tolerate. The decisions not to cut the NHS or the fatuous budget for overseas aid are simply derelict. The NHS was used in the last two or three years of the Labour government to pile people on to the public payroll in order to massage the unemployment figures. These were not doctors or nurses, or anyone else who might actually be useful, but clerical staff, more management and unskilled labour. As for overseas aid: Andrew Mitchell, the Secretary of State responsible, has said he will seek to stop aid going to countries such as India and China whose prosperity renders such largesse otiose. Good for him. But there has been no intellectual evaluation of the usefulness of aid to other countries, many of them despotisms, where the good done is felt by a ruling clique rather than by a benighted people. We should have a pot of money to help alleviate the effects of natural disasters, but the routine nature of this expenditure cannot otherwise be justified. It is gesture politics at its most cynical and nauseating, and cannot be worth having an immediately redundant aircraft carrier and losing our Harrier jets.

The protection of the education budget – a sop to the Liberal Democrats – is equally devoid of value. The more spent in our state education system, the worse its results have become. Is this a coincidence? As in so much of the rest of the public sector, no conception of value or quality has been allowed to compromise the notion that the more one spends, the better the outcome must be. Were anyone taught Latin these days the simple rejoinder of “si monumentum requiris, circumspice” would suffice.

Third, allowance should have been made in the volume of cuts to provide for reductions in personal and corporate taxation, and to obviate the need for the rise in VAT to 20 per cent in January. Recovery does not merely require deficit reduction, essential though that be: it requires an encouragement to spend money. This is why Alan Johnson’s belief that we should tax more to reduce the deficit is so off‑beam. The Government gets ideological when it suits it to do so, as with the policy of taking welfare benefits away from those (allegedly) rich enough not to need them. This is an entirely supportable policy, provided there is a quid pro quo of reducing the state’s expropriation of their income.

At the moment, a large proportion of our working population, many of whom are wealthy by no reliable definition of the term, have endured higher direct and indirect taxes, are facing the loss of benefits and are watching the value of their main asset – their house – erode steadily. Their confidence to go out and spend is understandably eroding, too. The less they consume, the fewer manufacturers or service providers are required to oblige them. The deflationary effects of taking billions out of the economy should be countered not by a cushion or a subsidy, but by a stimulus. Again, the Government seems saddled with its obsession not to give salary-earners a tax cut in case it aggrieves those who are not salary-earners. This is mad. Either we want recovery or we don’t. What we are told will happen today does not exactly have “recovery” running all the way through it like the proverbial stick of rock.

We must not forget that this attempt at regeneration is being brought to us by the same people whose slogan, until weeks before banks started collapsing in the autumn of 2008, was “sharing the proceeds of growth”. They couldn’t see that the management of the economy was such that there wasn’t going to be any growth. They blithely believed, until too late, in the Brown economic miracle. Their critique of the last prime minister’s policies was sane only when conducted from the back benches by people like John Redwood and Michael Fallon, never from the blinkered ignorance of the front bench. “Sharing” did mean tax cuts – how very nice of them – but also putting more money into a public sector that had grown excessively and had created an anti-Conservative client state, and which the Conservative Party none the less thought it sensible to carry on funding. These were deeply flawed judgments. Today’s will not be much better if they turn out to be driven by a desire to maintain much of Labour’s clientele.

In welfare reform, the development of the theory of the undeserving poor has much to commend it, provided someone knows how to handle the social consequences of ending the something-for-nothing society. We should certainly stop sending people to jail who are no threat, but any attempt not to imprison those who are will have serious effects. The police are wasteful in their bureaucracy, but that will not stop chief constables grandstanding by implementing cuts to the front line. Cuts in defence need to come out of the MoD bureaucracy, not out of our fighting strength; and that is not because Hillary Clinton doesn’t like it, but because our strategic necessities as a nation demand it. Perhaps Mr Osborne will address the burgeoning little – and not so little – empires in local government, with county councillors now routinely going on publicly funded foreign junkets in the way that MPs used to.

Today will be a start. It will not, though, be anything like all that is required, and, above all, it will keep spending rising. Any assertion to the contrary will merely be an example of the spin our present masters promised to repudiate, but which they embrace with all the fervour of their unlamented predecessors.